The Commodity Futures Trading Commission has issued emergency directives telling prediction market platform Kalshi to continue operations in states where courts and regulators have ordered it to stop, raising new questions about federal and state authority
The Commodity Futures Trading Commission (CFTC) has taken the unusual step of instructing prediction market operator Kalshi to continue operating in states where courts or state regulators have ordered the platform to halt activity. This move has drawn sharp criticism from gaming attorneys and tribal gaming leaders, who argue that the federal regulator is openly disregarding judicial authority and established state law.
CFTC Emergency Orders Challenge State and Federal Courts
In the past six weeks, the CFTC has twice invoked its emergency powers to direct Kalshi to maintain operations in states where legal orders or regulatory actions required the company to suspend or void certain trades. On July 14, the CFTC ordered Kalshi to fulfill open trades in Michigan, despite a court order mandating the company geoblock the state and refund specific sports-related contracts. Less than a month later, on August 11, the CFTC issued an emergency declaration instructing Kalshi to continue operating in New York, even as the state ordered a halt and the Attorney General filed a $36 billion lawsuit against the platform.
These actions have intensified the ongoing debate over whether federal or state authorities should have the final say in regulating prediction markets, especially when court orders and federal directives directly conflict.
Legal Community Reacts to CFTC's Approach
During a recent episode of the Indian Gaming Association’s ‘The New Normal’ webcast, attorneys and tribal leaders expressed alarm at the CFTC’s willingness to override court decisions. IGA Conference Chair Victor Rocha and Executive Director Jason Giles both described the regulator’s actions as unprecedented, with Giles questioning whether any tribal gaming operation could expect similar treatment from the National Indian Gaming Commission.
Joseph Webster, managing partner at Hobbs, Straus, Dean & Walker, LLP, noted that he had never seen a federal agency instruct a regulated entity to ignore a court order. Scott Crowell of Crowell Law Office Tribal Advocacy Group argued that CFTC Chairman Michael Selig, currently the agency’s sole commissioner, is setting a new precedent by encouraging registrants to violate judicial rulings. Crowell emphasized that such direct defiance of federal court orders is without precedent in his five decades of legal practice.
Wider Litigation and Federal-State Tensions
The CFTC’s interventions are not limited to Michigan and New York. The agency has filed court documents, amicus briefs, or executive orders in ongoing litigation across Arizona, Connecticut, Illinois, Kentucky, Minnesota, New York, and Wisconsin. According to Webster, there have been roughly 80 cases involving prediction markets in federal and state courts over the past 18 months, an unprecedented volume for this sector.
Crowell suggested that the CFTC’s aggressive stance signals an attempt to position itself as the primary regulator of sports event contracts, despite a lack of congressional intent or prior agency action in this area. He argued that the agency’s recent moves amount to manufacturing a new regulatory framework for prediction markets, rather than enforcing established law.
Supreme Court Review Likely as Circuit Split Looms
Legal experts on the webcast agreed that the escalating conflict between state and federal authority over prediction markets is likely to reach the Supreme Court. Webster expects New Jersey to file a petition for certiorari by September 3, following a split decision in the U.S. Court of Appeals for the Third Circuit earlier this year. Other appeals, including those in the Sixth Circuit, remain pending, with observers noting that recent judicial questioning appears to favor state and tribal regulators over prediction market platforms.
This federal-state clash is not isolated. In a related development, Novig recently filed lawsuits against five states challenging restrictions on its sports prediction markets, as detailed in coverage of Novig's multi-state legal challenge. The outcome of these cases could further clarify the boundaries of federal and state oversight in the prediction market sector.
Understanding the distinction between prediction markets and traditional sports betting is essential in this context. Prediction markets, such as those operated by Kalshi, allow participants to buy and sell contracts based on the outcome of future events, often under federal oversight as Designated Contract Markets. However, state gambling regulators and courts may view these contracts as unlicensed gambling, leading to conflicting legal interpretations and enforcement actions. The ongoing litigation and regulatory interventions highlight the unresolved tension between federal commodity regulation and state gambling law, with significant implications for operators, regulators, and players alike.
